Notes by Mr. Amogh *2*

In what comes as a big boost to the waning confidence in the Indian economy, credit rating agency Moody's has reaffirmed India's sovereign rating at BAA3. However, it has said that India's growth downturn is expected to persist for two quarters.

But, Moody’s has said that if the fiscal deficit situation worsens, it may lead to a change in the credit ratings, reports CNBC-TV18’s Aakansha Sethi.

The important thing is that they have maintained India’s sovereign rating at BAA3 at a time when S&P downgraded the US from AAA to AA+ and its outlook from stable to negative in August 2011. 15 other sovereigns have been downgraded, such as Japan, Belgium, Italy, Spain and Hungary, so this reaffirmation of the rating should be seen as a positive.

The good news extends as Moody's upgraded the rating on long-term government bonds denominated in the domestic currency from BA1 to BAA3. This means that it goes from being speculative to investment grade. Similarly, the long-term country seeding on the foreign currency bank deposits have been upgraded from speculative to investment grade. Also, short-term government bonds denominated in domestic currency have been upgraded from NP to P3, which means that now the issuers have acceptability to repay short-term debt.

So with these three points, the government is happy that India's short-term and long-term government bonds have got an upgrade. They do feel that this could have been pushed further and India deserves a better upgrade, but that's of course the government talking. It remains to be seen if the government manages to hold onto that fiscal deficit picture and if it maintains its outlook.

Source: CNBC TV18